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A.G. Schneiderman Announces New Disclosure Requirements For Nonprofits That Engage In Electioneering

A.G.’s Action Requires Nonprofits To Disclose Extent Of Their Political Spending, Identify Donors And Expenditures Related To New York Elections

So-Called “Dark Money” Groups That Proliferated Since Citizens United To Be Brought Into The Light

Schneiderman: Disclosure Of Nonprofit Electioneering Will Protect Charitable Donors While Making Electoral Process More Transparent

NEW YORK – As part of a groundbreaking effort tobring transparency to the political processand protect donors to nonprofits, Attorney General Eric T. Schneiderman today announced new regulations requiring nonprofit groups, including 501(c)(4) “social welfare” organizations that are registered with the state, to report the percentage of their expenditures that go to federal, state and local electioneering. Those groups that spend at least $10,000 to influence state and local elections in New York will be required to file itemized schedules of expenses and contributions. Under the proposed new rules, those disclosures will be released to the public.

“More money is being spent on our elections, with less disclosure of where that money is coming from, than ever before. By shining a light on this dark corner of our political system, New York will serve as a model for other states, and for the federal government, to protect the integrity of nonprofits and our democracy,” Attorney General Schneiderman said. “Requiring nonprofits to disclose the extent and nature of their electioneering activities will protect prospective donors from misleading solicitations, and give voters more information about who is behind many of the ads they are seeing.”

In the wake of the U.S. Supreme Court’s 2010 Citizens United decision, 501(c)(4) organizations, which are exempt from federal and state taxes because they purportedly engage in the “promotion of social welfare,” have become vehicles for political activity, including funding sham “issue ads” that attack candidates for public office. 501(c)(4)s have become attractive conduits for this sort of activitybecause they can raise and spend unlimited funds, conceal their funding sources, and avoid paying corporate taxes on donations. In the last two election cycles, election spending through 501(c)(4)s exceeded spending through traditional political action committees.

As the state law enforcement official with primary responsibility for overseeing nonprofit organizations, Attorney General Schneiderman is empowered by law to determine the form and manner in which organizations make required annual financial reports to his office, and to enact rules and regulations to administer the financial reporting system. The Attorney General makes these reports available to the public so that prospective donors can make informed decisions before contributing. In light of the recent spike in nonprofit spending designed to influence the outcome of elections, expanded reporting requirements for spending on electioneering will further empower donors to protect themselves. Without improved disclosure, the Attorney General is concerned that misleading solicitations and abuse of charitable assets for electoral purposes will undermine public confidence in the nonprofit sector.

Since the Watergate era, intervention in political campaigns has been largely confined to political action committees (PACs). PACs are governed by state and federal election laws that require them to disclose expense and contributor information to election authorities and the public. But since the Supreme Court’s decision in Citizens United v. FEC, there has been a well-documented proliferation of secretive nonprofit groups engaging in electioneering activities with minimal disclosure to regulators and the public.

Good government advocates have coined the term “dark money” to describe anonymous election spending through 501(c)(4)s. Advocates of government transparency decry dark money because it allows deep pocketed interests to spend millions of dollars supporting or opposing candidates — often even more than the candidates themselves spend — without disclosing their identities. This opens the door to conflicts of interest and corruption.

“When people spend money to try to influence our elections, the public needs to know where that money is coming from, and how it is being spent. Nonprofits should not be used to subvert that basic principle,” Attorney General Schneiderman added. “Simply put, transparency reduces the likelihood of corruption.”

The new regulations apply to all registered organizations exempt from taxation under section 501(c) of the Internal Revenue Code, except for 501(c)(3) organizations, which are already strictly prohibited from intervention in political campaigns. The regulations define “electioneering activities” broadly to include express advocacy (advertisements and other communications that call specifically for the election or defeat of a particular candidate, referendum, or party) and issue advocacy (communications made within 180 days of an election that identify or depict particular candidates, referenda, or parties by name but that do not explicitly call for their election or defeat). The regulations apply to communications through television, radio, print advertisement, telephone and over the internet.

Attorney General Schneiderman’s disclosure regulations also require registered nonprofits that spend $10,000 or more in a year in connection with New York state and local elections to file an itemized schedule with its annual financial report disclosing: (1) each expenditure it made in connection with a New York state or local election, including the expenditure’s recipient, date, amount and purpose; and (2) each contribution of $100 or more it received, including the contributor’s name, employer and address, and the amount and date of the contribution, subject to certain limitations and exceptions to protect donor privacy. This information will be made available to the public.

The regulations exempt any nonprofit from having to file information with the Attorney General that the organization discloses to another agency that makes it available to the public.

To protect donor privacy and the right of free association, Attorney General Schneiderman’s regulations contain two key exceptions to the disclosure requirements. First, the regulations do not require the schedule to include information about donors whose donations are restricted so that funds cannot be used for electioneering. So long as organizations keep earmarked funds in separate bank accounts from funds that are used for electioneering, information on that donor need not be disclosed. Second, Attorney General Schneiderman’s regulations create a waiver application procedure. If public disclosure of a contribution or a donor’s identity could cause undue harm, threats, harassment or reprisals, the organization or the donor can apply to the Attorney General’s office for a waiver from disclosure of information concerning that donor. The Attorney General’s staff will review applications and grant waivers where appropriate.

The Attorney General’s office submitted the regulations to the Department of State for publication in the State Register on Tuesday. The Department of State is expected to publish the regulations in the State Register 15 days later, on Wednesday, December 26. Members of the public will then have until March 6, 2013to provide written comments to the Attorney General’s office. The Attorney General’s office will also hold four hearings in New York City, Albany, Buffalo and Long Island to allow members of the public to comment in person.

After the comment period has closed, the Attorney General’s office expects to adopt the regulations early next year, subject to any changes that may be warranted by public comments. The regulations will become effective immediately upon adoption. Under the proposed regulations, nonprofits will be required to begin making enhanced disclosures as part of annual financial reports filed with the Attorney General’s Charities Bureau. These enhanced disclosures are expected to occur in many cases in time to effect disclosure of information concerning 2013 local elections, including New York City elections, and in all cases in time for New York State’s 2014 elections.